The Suntan Tax: The First Tax Increase in the New Healthcare Law

What You Should Know So Your Small Business Won’t Get Burned

It has long been said, “if you tax more of something, then you will get less of it.” That is exactly what many in the indoor tanning industry are worried will happen on July 1, 2010 when the first tax increase in the new healthcare law takes effect. Known as the “suntan tax,” the new tax is predicted to transfer $2.7 billion (over 10 years) from the indoor tanning industry to the coffers of the federal government. The 10% excise tax on indoor tanning services is simply another “revenue raiser” to pay for the nearly $1 trillion healthcare law signed into law earlier this year.

Under the new law, small businesses providing indoor tanning services must:

Calculate and collect the 10% tax from those individuals purchasing tanning services;

Provide a separate pricing structure for the cost of tanning services that are part of a package (e.g., if tanning services are sold in connection with nail services);

Fill out and file Form 720 with the Internal Revenue Service (IRS) when reporting and paying the tax each quarter; and

Maintain adequate books and records showing the amount of revenue for the actual tanning services.

Why did Congress pass and the president sign this tax increase into law?

The tanning tax was added very late in the healthcare debate after Congress rejected the originally proposed 5% tax on elective cosmetic procedures – a high-profit business for medical providers who perform these expensive procedures. The tax was added without any analysis of how it would affect the indoor tanning industry – a very poor way to write tax policy.

Who will be most affected by the new tanning tax?

Analysis conducted by the Indoor Tanning Association notes that the retail side of this industry is made up of one store operations, classic “mom and pop” small businesses typically owned and operated by women. Not only are a majority of these business owners women, but as many as 75% of the employees and customers are women, as well.

How will the indoor tanning industry be affected by a new 10% tax?

The new tax amounts to a 10% increase in the cost of doing business, and that money has to come from somewhere. No doubt, higher taxes result in less investment, making it harder to bring customers in the door and stripping businesses of resources to hire new employees – all the things we need to move our country out of this recession.

What sorts of tanning services are taxable?

According to IRS regulations, “a taxable indoor tanning service means a service employing any electronic product designed to incorporate one or more ultraviolet lamps intended for the irradiation of an individual by ultraviolet radiation, with wavelengths in air between 200 and 400 nanometers, to induce skin tanning.”

As a business owner, how do I collect the tax?

The business owner providing and receiving payment for indoor tanning services must collect the payment for the indoor tanning service from the individual purchasing/using the service.

How and when do I pay the tax?

The new tax is reported and paid quarterly on Form 720, the Quarterly Federal Excise Tax Return. The first payment for the suntan tax is due October 31, 2010.

By the numbers…A look at the tanning industry:

The indoor tanning industry is represented by more than:

19,000 businesses

160,000 employees

Most indoor tanning facilities in the U.S. are small businesses, and more than 50% of them have female ownership, according to the U.S. Census.

Each year about 10% of the American public visits an indoor tanning facility.